Finances remain problematic

But no new crisis looms on the horizon, maybe

As far as financial crises for local government go - and we have them with regularity around here - the one announced last week appears to have less impact than one would initially think. Or am I just feeling crisis fatigue?

The Delaware County Auditor's office released figures based on property tax calculations for bills that had just been mailed out to property owners. At first blush, the information would make a bookkeeper for any unit of local government feel faint.

For example, the city of Muncie, Muncie Community Schools and Delaware County government jointly were facing additional budgetary cutbacks of $6 million, $2 million and $1 million respectively, cutbacks that could not be foreseen until tax bills were run.

While that's one conclusion that could be drawn from one perspective, we have other ways to look at the data that make the crisis less catastrophic.

What the auditor's office actually announced were not what had to be cut back, but what the total "local property tax credits" amounted to for each unit of local government.

These are figures not known until tax rates are final, property assessments are set, levies are calculated and Indiana's property tax caps are added into the equation.

The system is extraordinarily complicated. Local governments go about their business and each fall, or earlier, create a budget for the following year, which has to be approved by Indiana's Department of Local Government Finance, along with a tax rate to raise that money.

But - and this is a big but - if all those budgets, when added together, exceed what the taxpayers are cap-limited to pay, taxpayers get "local property tax credits" for any amount over the cap.

Homeowners who live in their home are capped for local property tax purposes at 1 percent of their home's gross assessed value. If your home's worth $150,000, you can't pay more than $1,500 in local property taxes.

For highly taxed property, such as inside a city where taxpayers have to support the city, county, township, sanitary district, library, bus system and even more governments, taxpayers whose home value exceeds about $75,000, are typically at the cap.

Their tax bill will show that the total of all taxes the various units of local government wants from them exceeds their cap. The tax bill makes the full calculation, but then any amount over the cap is called the local property tax credit.

You get credited with that amount and the amount is deducted from what you pay, so you only wind up paying the cap.

The total credits this year are higher than in the past, which precipitated the crisis du jour.

One reason the credits are up is because most local government units raised their budgets and their tax rates. The city of Muncie, for example, had a tax rate last year of $1.52 per $100 of assessed property value.

For this year, the city hiked its general fund budget by $1.5 million. The city's up 41 cents this year, or 27 percent, to a rate of $1.93. The county tax rate went up, as did Muncie Community Schools, the library, the airport. Center Township's rate went way down, largely because of lessened fire protection costs now that the city fire department extends service to the township.

(The city of Muncie did lose overall assessed value between this year and last. The value of all property went down 2.02 percent, and this would be one factor - albeit a small one - for the rise in tax rates.)

In total, city taxpayers overall combined tax rate is $5.12, up from $4.40 last year. Yet the caps remain, so while those people who already were at their cap will get billed higher amounts, they'll receive higher tax credits.

The higher tax credits will reduce their actual tax payment down to the cap.

So higher tax rates created higher tax credits.

We're now in the third year of the complete tax cap limitations. The cap was phased in over several years, theoretically to allow local governments to adjust their spending habits.

That hasn't worked well with every unit, the county government being the most egregious in its inability to balance expenditures with now-capped revenues.

Others have done better. The city bit the bullet in 2010 and, among other moves (such as having the water company impose fire hydrant fees on users) the city laid off firefighters - since returned thanks to temporary federal grants - to balance the budget.

All local government units know what they face and should have a good idea of how much property tax revenues they'll get this year: about the same as last year, perhaps a little more in some cases, a little less in others.

They better have taken that into account when formulating this year's budget. If they didn't, the "tax credits" issue will be a crisis.

Larry Riley teaches English at Ball State University. Email him at lriley@bsu.edu.

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Finances remain problematic

As far as financial crises for local government go ? and we have them with regularity around here ? the one announced last week appears to have less impact than one would initially think. Or am I